Exam 16: Securities Firms and Investment Banks

Angel venture capitalists have invested more in start-up firms than institutional venture capital firms.

Program trading is the simultaneous buying and selling of at least 15 stocks worth a total of $1 million or more.

Firms in the securities industry are required to maintain a minimum capital to asset ratio of ______________.

Darby Minerals wants to hire an investment banker to sell two million shares of stock to the public. Darby is considering using either a firm commitment or a best efforts offering. (a)If Darby goes with a firm commitment,the offer price will be $15.00 per share and the spread will be 25 cents a share and all two million shares will be sold. The actual sale price to the public is $14.55. (b)Suppose that Darby uses a best efforts offering. The actual sale price to the public is again $14.55 and the investment banker charges 4 cents per share sold as commission. Assume that in the best efforts offer only 1.85 million shares can be sold. What are the proceeds to Darby from the sale of stock in the firm commitment and the best efforts and what is the investment banker's gain or loss in each case? Ignore any other costs and expenses.

Although an investor can write checks on a cash management account held with a broker,regulations prevent the use of ATMs or debit cards on these accounts.

An investment banker agrees to a best efforts offering of 2.5 million shares of Crew stock. The offer price is set at $35 per share. If the stock is actually sold to the public at $34.50 and the banker charges a 3.45 cent commission per share sold,what is the amount of funds Crew receives? (Ignore any other fees or expenses.)

Day-to-day trading practices of securities firms currently may be regulated by which of the following? I. FINRA II. SEC III. Federal Reserve IV. SIPC

The anti-money laundering provisions of the U.S.A. Patriot Act requires securities firms to I. verify the identity of any person seeking to open an account with their firm. II. keep separate records of accounts originating from foreign countries. III. determine whether the client appears on any lists of known or suspected terrorists or terrorist organizations.

The Securities Investor Protection Corporation protects investors against losses due to unfavorable market moves of up to $500,000.

Cash management accounts offered by a securities firm allow investors to write checks on funds invested in money market securities.

An entrepreneur looking for financing to get her small,personally-owned business up and running should probably consider

If you buy 100 shares of IBM stock in anticipation that earnings will increase by more than anticipated,you are engaging in what is termed a risky arbitrage.

Brokerage commission income and stock market valuations tend to move inversely in most years,including in 2010.

For securities firms,income from investment management is more stable than income from underwriting or trading activities.

Diversified full-line investment banks act as both broker dealers and securities underwriters.

Why did profitability of security firms drop precipitously in 2005 and rebound in 2006 only to fall again in 2007?

Buying large blocks of securities and holding them until the price rises sufficiently to warrant a sale is an example of pure arbitrage.

The largest liability of broker dealers in 2012 was

What are the major types of firms in the investment banking industry? Briefly describe each.

What did the Sarbanes-Oxley Act do to try and prevent additional scandals at corporations? What more needs to be done to prevent additional scandals among investment bankers?